When customers come into your tire or auto service shop and ask your advice about their hybrid or electric vehicles, can you answer their questions or solve their problems—or do you have to send them to an auto dealership?
More and more tire dealers are having to ask themselves these questions as the hybrid and electric vehicle (HEV/PHEV/BEV) market continues to expand.
Thirteen years ago, Honda Motor Co. Ltd. and Toyota Motor Corp. Ltd. started selling hybrid vehicles. The Toyota Prius and Honda Insight were the only two models available in 2002.
Today, there are more than 70 models from almost every vehicle manufacturer, and there are over 3 million hybrids on the nation's roadways.
The U.S. Department of Energy projects that by year-end, hybrids will represent about 7 percent of the vehicles sold in the U.S. and by 2020 that number will grow to 10 percent.
The government is driving much of this growth through the Corporate Average Fuel Economy (CAFE) standards, which were developed in 1975 and have mandated that manufacturer fleets improve fuel mileage to eliminate emissions. By 2017, the CAFE average will grow to 34.1 mpg, and by 2025 it will cap at 54.1 mpg.
It's clear that fuel economy is a priority in Washington, D.C., and that the government seems to love alternative fuel vehicles. Some states, such as California, include electric vehicles in their fleets.
Experts predict that the internal combustion engine eventually will be supplanted by hybrid and battery-powered electric cars or hydrogen fuel cells. This effort will continue, the recent plunge in global oil prices notwithstanding.
A recent article on auto industry veteran Paul A. Eisenstein's The-DetroitBureau.com website states: “Conventional gas-powered vehicles will be in the minority worldwide by 2017.”
So why do tire dealers need to be in the hybrid business?
That's a fair question, and one that I answer daily for tire dealers and service shops.
I spent almost 40 years in the tire business before venturing into the hybrid arena, and the tire business today is tougher than it has ever been. Tires have become a commodity, profits are dwindling, retail-consolidation is choking many smaller independents and it seems lately that everyone wants to get into the business of selling tires—including car dealerships.
For much of my career I've watched as consumers have fled from car dealers to the aftermarket after the initial warranty period ended. That didn't seem to bother the car dealers years ago because there was enough warranty work paid for by the manufacturers to support the business.
Today, vehicles are built better and the warranty rates have dropped dramatically—and that is driving car dealerships into the tire and automotive service arena to retain and capture lost revenues.
So not knowing the answers about servicing hybrids and electric vehicles and sending customers back to car dealers potentially hands your customer to the competition.
Customers today are more savvy, and their expectations have risen. They expect a tire and service shop to provide what their vehicle needs; if your employees are not knowledgeable in the newest industry technologies, customers may view you as being behind the times and take their vehicles elsewhere, possibly never to return. The average family owns 2.3 vehicles—if they take one of their vehicles to your competitor, they most likely will take all of them.
If you were to ask a random sampling of tire and auto repair shop owners if they serviced hybrids, the majority would likely answer yes, and that would be misleading. Most dealers only provide the traditional tires, alignments, brakes, oil-changes, suspensions, etc., for these vehicles. What these shops are missing is the additional revenue stream derived from having their technicians trained and capable of servicing the entire hybrid drive system—meaning hybrid battery packs, power inverters, DC to DC converters, hybrid controllers and electric components.
Hybrid and electric vehicles can be a profitable segment of the business. The average repair order is higher with hybrids, meaning higher sales and profits. Because there is added cost and complexity when dealing with hybrid drive systems, the cost of service and maintenance increases. That's a market-driven reality created by hybrid car manufacturers.
The good news for tire dealers and repair shop owners as hybrid repair specialists—and for the consumer—is that you are able to offer lower-cost alternatives than car dealers. An average cost to replace a hybrid battery at a car dealership is about $4,000. An independent shop can condition that same battery for less than half the cost and make a substantial gross profit. It's a win-win for both you and the customer.
Fully servicing hybrid vehicles creates a brand new revenue stream for your shop. Every dollar you generate from being able to service the full hybrid drive system is purely incremental. It simply did not exist before.
Face it, there are very few avenues within your business that provide this type of new revenue opportunity. Providing full service for hybrids also opens the door to servicing the customer's other vehicles as well.
Conversely, you provide your competitor the opportunity to take existing business if they position themselves as the hybrid experts and take the second vehicle from you.
There's an old saying, “The first in wins”—meaning the first dealer in the market that embraces new technology, trains their employees to work on the vehicles, and promotes the services will position themselves as the expert and win loyal customers. Tire dealers today need to differentiate themselves from the competition. If they don't, they then settle into the commodity arena and are forced to deal on price to gain customers. If you efficiently and effectively service hybrid-electric vehicles, it can mean incremental service revenue from other household vehicles and referrals.
As tire dealers, your employees need to be aware that low-rolling-resistant tires are essential on a hybrid to maintain gas mileage. Hybrid owners purchase the vehicle for better gas mileage and to help protect the environment. This means that they watch their vehicles' mpg on a regular basis, and installing the wrong tire will probably raise a red flag very quickly.
That positions your store in a negative light and is a lost opportunity to sell a higher gross profit tire. Tires also provide an opportunity for nitrogen sales, a chance to bring the customer back for rotations, air-pressure checks and alignments, synthetic oil-changes, flushes and a basic courtesy check.
In this aftermarket industry, much of what we sell is purely commodity-priced services. Traditional services such as brakes, alignments, oil changes and the like need to be at or close to the market pricing or you'll lose business to competitors. If you are offering a unique service capability, such as servicing and maintaining the hybrid drive system, you're not selling on price. So you've differentiated yourself from the competition and can increase revenues.
Over the last 40 years in this business, I've always tried to prepare for changes. I categorized them into “evolutionary” and “revolutionary.” The evolutionary ones are the technical innovations that vehicles have gone through—such as drum to disc brakes, shocks to struts, valve stems to tire pressure monitoring systems (TPMS).
We tend to resist at first, then educate our employees, embrace the change and move forward. The revolutionary changes force us to change our business model—such as stainless steel exhaust, electronic ignition and on-board computers. These changes can dramatically affect the way we do business and force us to change our business model to survive.
I would characterize HEV/PHEV/BEV as both evolutionary and revolutionary. The vehicle designs are evolving to accommodate electric drive, battery pack and fuel cell systems. Within these electric designs there are constant revolutionary changes every year with new systems, components, etc.
The changes in the HEV/PHEV/BEV segment provide significant opportunities to the aftermarket. If dealers position themselves now, they will grow with these evolutions/revolutions and reinvent their businesses as the vehicle technologies change. This will position their businesses as one of the few venues where vehicles are serviced by competent service personnel using the correct processes, procedures, and equipment.
A good friend of mine uses the term “COI”—the Cost of Ignoring. How many changes have we seen over the years and been slow to react to, and how much business was unrealized? Vehicles will continue to evolve and HEV/PHEV/BEV will continue to grow. If your shop is in the service business, can you afford to ignore what is projected to be at least 10 percent of the vehicles that pass by your store every day?
Hybrids are the future, and those businesses that step up and embrace it today will be the ones who will ultimately win. The next time a customer asks a hybrid question, how are you going to respond?
Tire industry veteran Dave Crawford is CEO of Gainsville, Va.-based The Hybrid Shop L.L.C. (THS) He has held various executive-level positions spanning business levels that include retail, franchises and the operation of multi-location service centers and most recently was vice president of operations for American Tire Distributors Holdings Inc.'s Tire Pros dealer network. Founded in 2013, THS is an international network of dealerships that offer battery pack conditioning, hybrid technology and training to licensed dealers.